Correlation Between VARNO and LB Foster

Can any of the company-specific risk be diversified away by investing in both VARNO and LB Foster at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining VARNO and LB Foster into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between VARNO 8 15 NOV 32 and LB Foster, you can compare the effects of market volatilities on VARNO and LB Foster and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in VARNO with a short position of LB Foster. Check out your portfolio center. Please also check ongoing floating volatility patterns of VARNO and LB Foster.

Diversification Opportunities for VARNO and LB Foster

0.05

Correlation Coefficient

VARNO  LB Foster

Significant diversification

The 3 months correlation between VARNO and FSTR is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding VARNO 8 15 NOV 32 and LB Foster in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LB Foster and VARNO is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on VARNO 8 15 NOV 32 are associated (or correlated) with LB Foster. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LB Foster has no effect on the direction of VARNO i.e., VARNO and LB Foster go up and down completely randomly.

Pair Corralation between VARNO and LB Foster

Assuming the 90 days trading horizon VARNO 8 15 NOV 32 is expected to generate 0.2 times more return on investment than LB Foster. However, VARNO 8 15 NOV 32 is 4.98 times less risky than LB Foster. It trades about -0.04 of its potential returns per unit of risk. LB Foster is currently generating about -0.15 per unit of risk. If you would invest  11,285  in VARNO 8 15 NOV 32 on December 30, 2024 and sell it today you would lose (124.00) from holding VARNO 8 15 NOV 32 or give up 1.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	70.97%
Values	Daily Returns

VARNO 8 15 NOV 32  vs.  LB Foster

VARNO 8 15

Risk-Adjusted Performance

Modest

Over the last 90 days VARNO 8 15 NOV 32 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, VARNO is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

LB Foster

Risk-Adjusted Performance

Very Weak

Over the last 90 days LB Foster has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with VARNO and LB Foster

The main advantage of trading using opposite VARNO and LB Foster positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VARNO position performs unexpectedly, LB Foster can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in LB Foster will offset losses from the drop in LB Foster's long position.

The idea behind VARNO 8 15 NOV 32 and LB Foster pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.